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Good morning. My name is Lorrie, and I'll be your conference facilitator today. Welcome to Frontera Energy's Fourth Quarter 2021 and Year-End Operating and Financial Results Conference Call. All lines are currently on mute to prevent any background noise. The call is scheduled for 60 Minutes. I would like to remind you that this conference call is being recorded today, and it's also available through audio webcast on the company's website. After the speakers' remarks, there will be time for questions. Analysts and investors are reminded that any additional questions can be directed to the company at ir@fronteraenergy.ca. This call contains forward-looking information within the meaning of applicable Canadian security laws relating to activities, events or developments the company believes or expects will or may occur in the future. Forward-looking information reflects the current expectations, assumptions and beliefs of the company based on information currently available to it.
Also, the company believes the assumptions are reasonable. Forward-looking information is not a guarantee of future performance. Forward-looking information is subject to a number of risks and uncertainties that may cause the actual results of the company to differ materially from those discussed in the forward-looking information.
The company's MD&A for the year ended December 31, 2021, and the company's Annual Information Form dated March 2, 2022, and other documents it files from time to time with securities regulatory authorities describe the risks, uncertainties, materials assumptions and other factors that could influence actual results. Any forward-looking information speaks only as of the date on which it is made and the company disclaims any intent or obligation to update any forward-looking information except as required by law.
I would now like to turn the call over to Mr. Gabriel de Alba, Chairman of the Board of Frontera Energy. Please go ahead, sir.
Thank you operator and thank you everyone for joining today's conference call to review Frontera's fourth quarter and year-end operating and financial results. Joining me on the call are Orlando Cabrales, Frontera's CEO; Alejandro Piñeros, Frontera's CFO. Also available to answer questions at the end of the call, we have Victor Vega, VP of Field Development, Reservoir Management and Exploration; and Regan Palsgrove, Head of Exploration.
Frontera continues to deliver on its strategic, operational and financial objectives. In 2021, the company generated $373.2 million of EBITDA, an increase of 117% compared to 2020 and within the company's tightened and increased full-year operating EBITDA guidance range. Frontera averaged 37,818 barrels per day, in line with 2021 guidance.
Frontera recorded net income of $628.1 million in 2021, primarily due to impairment reversals. The company released approximately $105.6 million of restricted cash, increased its uncollateralized credit lines to $89.6 million at year-end and repurchased approximately 3.86 million or 7.4% of its public float for cancellation for approximately $21.5 million under its current NCIB as of December 31, 2021.
The company completed the pipeline Conciliation Agreement, which eliminated more than $1 billion in contingent liabilities. Frontera's production costs averaged $11.46 per barrel and its transportation costs averaged $10.43 per barrel, both within its 2021 guidance ranges. Importantly, Frontera achieved 98% of its 2021 ESG goals, including offsetting 41% of its emissions through carbon credits and preserving and restoring 765 new hectares of key connectivity corridors in Casanare and Meta Departments in Colombia.
I'm extremely proud of our fourth quarter and year-end 2021 results. I would like to acknowledge the hard work and dedication of entire Frontera team, its management and its Board of Directors for their efforts in helping the company achieve such positive results.
I will now turn the call over to Orlando Cabrales, Frontera's CFO (sic) [Frontera's CEO] (00:05:02); and our CFO, Alejandro Piñeros, who will share their views on our fourth quarter and year-end results. Orlando?
Thank you Gabriel and good morning, everyone. Frontera delivered strong fourth quarter financial and operational results. Production averaged 88,605 boe per day (sic) [38,605 boe per day] (00:05:24), up 6% compared to the previous quarter, and the company's year-end production exit rate was 40,457 boe per day excluding Petrosud, in line with the company's production guidance.
Frontera's daily production on March 1 of this year was approximately 42,000 boe per day and the company's year-to-date average production is approximately 40,500 boe per day. During the fourth quarter, Frontera began early production of 2,400 boe per day plus at La Belleza discovery on VIM-1, acquired 100% of the issued and outstanding shares in Petrosud, which added 1,300 boe per day of production. We also signed an agreement to acquire the remaining 35% interest in el Dificil block held by PCR, which will add an additional 500 boe per day of production when the deal closes in the second half of this year. We also discovered hydrocarbon bearing reservoirs in multiple formations at the Jandaya-1 exploration well in Ecuador. Subsequent to year-end we were awarded Block VIM-46 in the 2021 Colombia Bid Round. And importantly, we announced that our JV in Guyana had discovered approximately 200 feet of net pay with multiple horizons at the company's potentially transformational Kawa-1 exploration well, offshore Guyana.
Compared to the prior quarter, cash provided by operating activities increased by 43%. The company's operating netback increased by 26%. Our net sales realized price increased 17% and the company's transportation cost per barrel decreased 12%. Operationally, in the fourth quarter of 2021, the company drilled 14 development wells, including 12 at Quifa and 2 at Guatiquia and completed 56 workovers and well services at Quifa, Guatiquia, Canaguaro, Abanico, Corcel, Cajua, Cravoviejo, Cubiro and Casimena. In 2021, the company drilled 42 producer wells, 3 injector wells and completed 148 workovers and well services.
We also delivered solid results in 2021. The company replaced 157% of net 1P reserves and 105% of net 2P reserves and extended our net 1P reserve life index to 8.7 years and our net 2P reserve life index to 13.3 years. We increased our net 2P natural gas and associated natural gas liquid reserves by 105% to [ph] 19-point million boe (00:09:25) further diversifying Frontera's future production mix. The net present value at a 10% discount on December 31, 2021, of the company's 2P reserves increased by 61% to $3,036 million before tax due in part to higher Brent prices year-over-year, but also greater operational and development cost stability.
I would talk about our Colombian operational activities in more detail in a minute, but first let me spend a few moments discussing our potentially transformational Kawa-1 exploration well in offshore Guyana. Frontera, through its joint venture with CGX in the Corentyne block offshore Guyana have safely completed exploration activities at the Kawa-1 exploration well. In line with our exploratory objectives, the well has now been safely plugged and abandoned and the Maersk Discover drilling rig has been released from the Kawa-1 location. Only a single lost time injury was recorded throughout Kawa-1 well operations. The final cost of the Kawa-1 exploration well was $141 million.
The Kawa-1 well was drilled to a total depth of 21,578 feet in the northern section of the Corentyne block. Drilling results confirm the presence of an active hydrocarbon system at the Kawa-1 location. Successful wireline logging runs confirmed net pay of approximately 200 feet within the Maastrichtian, the Campanian, the Santonian and the Coniacian horizons. These intervals are similar in age and can be correlated using regional seismic data to recent successes in Block 58 in Suriname and Stabroek Block in Guyana.
The JV did not get MDT data or sidewall core samples and has engaged an independent third-party to complete further detailed studies and laboratory analysis on drilling cuttings from the Santonian, Campanian and Maastrichtian intervals and well-bore fluid samples to evaluate in situ hydrocarbons. Preliminary results from the Santonian interval indicate the presence of liquid hydrocarbons in the reservoir. Results from the Campanian and Maastrichtian intervals are pending.
Kawa-1 well results have improved the JV understanding of the operational and geological complexities of the basin and will help reduce the technical risks of the Wei-1 exploration well. Given the initial positive results at the Kawa-1 well the JV is moving forward with its second exploration well, Wei-1 on the Corentyne block.
The JV has begun the integration of detailed seismic and lithological analysis and pore pressure studies from the Kawa-1 well into drilling preparations in advance of spudding the Wei-1 exploration well which will be spud in the second half of 2022. The Wei-1 exploration well will target Campanian and Santonian aged stacked channels in the western fan complex in the northern section of the Corentyne block. Data from both the Kawa-1 and Wei-1 wells will inform future activities and potential appraisal/development decisions.
On February 14, 2022, the JV announced that as a result of the initial positive results at the Kawa-1 exploration well, the JV will focus on the significant exploration opportunities in the Corentyne block and will not engage in drilling activities on the Demerara block in 2022. CGX is currently assessing several strategic opportunities to obtain additional financing to meet the costs of the drilling program.
Now, I would like to discuss production on our Colombian operations. Production averaged 38,605 boe per day in the fourth quarter, up 6% compared to the prior quarter. Currently, the company has five drilling rigs, five workover rigs active at its Quifa, Coralillo, Corcel, Copa and Guaduas operations in Colombia and at the Perico block in Ecuador. At Quifa, current production is approximately 16,100 barrels per day of heavy crude oil. The company drills 12 development wells at Quifa in the fourth quarter of 2021. In total, the company drilled 25 development wells and 2 injector wells at Quifa in 2021. Frontera also continued to recover water disposal levels in the fourth quarter by performing interventions in storm water disposal wells at different injection layers.
At Guatiquia, current production is approximately 9,400 barrels per day of light and medium crude oil. The company successfully completed the Coralillo-9 well in the fourth quarter which is currently producing 700 barrels per day. Frontera also completed Coralillo-15 in the fourth quarter which began production of 600 barrels per day in January of this year.
At CPE-6, current production is approximately 5,000 barrels per day of heavy crude oil. In the fourth quarter, we began operations on our facilities expansion strategy.
On the VIM-1 Block, production from La Belleza discovery began on November 8, 2021, with gross rates of approximately 2,400 boe per day. The Planadas-1 exploration well was drilled to a measured depth of 13,700 feet, but yielded no hydrocarbons.
Turning our attention to Ecuador. On December 7 of last year, Frontera spud the Jandaya-1 exploration well on the Perico block in Ecuador. This was among the first wells drilled in the country on acreage awarded through the 2019 Intracampos Bid Round. The well was drilled to a total depth of 10,975 feet encountering a total of 78 feet vertical depth of potential hydrocarbon bearing reservoir in three formations. Production tests in the lower Hollin formation have produced 882 barrels per day with a 1.7% water cut, after 29 days of testing. Development planning activities and permitted work is under way in advance of long-term testing of at least six months or a longer period of time if approved by authorities.
On January 28 of this year, Frontera spud its second exploration well called Tui-1 in the southern portion of the Perico block. The Tui-1 exploration well is expected to be drilled to a total debt of 10,972 feet and is targeting the same formations as the Jandaya-1 well. Additional prospects on the Perico block have been identified and are being matured for future drilling. Frontera's acreage position and initial positive results in Ecuador provided the company with flexibility, optionality and a potential future platform for growth.
I would now like to turn the call over to Alejandro Piñeros, Frontera's CFO, to discuss our fourth quarter and year-end financial results.
Thank you, Orlando. Frontera's operating EBITDA was $148.3 million in the fourth quarter, up 104% compared to the prior quarter. The increase quarter-over-quarter was primarily as a result of two more cargoes sold during the fourth quarter of 2021. Frontera generated $373.2 million of EBITDA in 2021, up 117% compared to 2020 and in line with guidance of $360 million to $380 million. The company's total cash position as at December 31, 2021, was $320.8 million compared to $419.5 million at September 30, 2021. Cash utilization during the period included $39.6 million of debt service and interest, $8.5 million in the Petrosud acquisition and $6.2 million to repurchase shares under the company's current NCIB program.
The company's restricted cash position as at December 31, 2021, was $63.3 million, down 37% compared to the prior quarter. The $37.4 million decrease in restricted cash quarter-over-quarter is primarily due to the release of approximately $28.9 million related to the Bicentenario Pipeline Settlement Agreement. In 2021, the company released approximately $105.6 million of restricted cash. The company anticipates releasing additional restricted cash in the second quarter of 2022 as the company continues to optimize its credit line.
Cash provided by operating activities was $113.5 million in the fourth quarter of 2021, a 43% increase compared to the prior quarter. At December 31, 2021, the company had a total inventory balance of 807,061 barrels. Sales volumes net of purchases in the fourth quarter increased by 46% compared to the prior quarter, reducing the inventory volume in Colombia in the quarter.
The company has various uncommitted bilateral credit lines. As of December 31, 2021, the company had increased its uncollateralized credit line to $89.6 million, an increase of $69.6 million compared to December 31, 2020. Subsequent to the quarter, the company has continued to increase its credit line by approximately $16 million. Frontera currently has uncollateralized credit line in excess of $100 million.
Under the company's current NCIB, the company repurchased for cancellation 989,300 common shares during the fourth quarter at a cost of approximately $6.2 million. As of March 1, 2022, the company has repurchased approximately 4.1 million common shares for cancellation for approximately $23 million. The company intends to renew its NCIB when it expires on March 16, 2022, to permit purchases for up to 10% of its outstanding float over the next year. Renewal of the NCIB program remains subject to acceptance by the Toronto Stock Exchange.
Capital expenditures were $135.5 million in the fourth quarter of 2021 compared to $103.2 million in the prior quarter. The company executed approximately $314.3 million in total capital spending in 2021 compared to $108.1 million in 2020. The increase in capital expenditures in the fourth quarter compared to the prior quarter was primarily due to increased development drilling and increased exploration activity in Guyana, Colombia and Ecuador.
The company recorded net income of $629.4 million or $6.6 per share in the fourth quarter of 2021 compared with net income of $38 million (sic) [$38.5 million] (00:24:32) or $0.40 per share in the prior quarter. Net income for the year was $628.1 million or $6.50 per share in 2021 compared with a net loss of $497.4 million or $5.13 per share in 2020. The increase in net income quarter-over-quarter was mainly due to the reversal of impairment, the recognition of additional deferred tax assets, the increase in Brent oil prices and additional volumes sold at the end of the year. The increase in net income year-over-year was mainly due to the reversal in impairments and the recognition of additional deferred tax assets.
The company's operating net back was $47.8 per boe, up 26% compared to the prior quarter, primarily due to higher net sales realized price and reduction in transportation costs mainly due to the recognition of prepaid services of the Bicentenario system, partially offset by the increase in production costs, mainly due to higher well services, maintenance activities and the increase in power generation and communities cost.
The company's net sales realized price was $69.53 per boe in the fourth quarter, up 17% compared to the prior quarter. The increase was primarily driven by higher Brent oil prices, higher volumes sold, lower cost of risk management contracts and lower royalties per boe during the fourth quarter of 2021.
Production costs averaged $12.71 per boe in the fourth quarter, up 11% compared to the prior quarter. The increase in production cost was mainly due to additional activities, maintenance activities and the increase in power supply and communities costs. Frontera's production costs averaged $11.46 in 2021, at the high end of our 2021 guidance range of $10.50 to $11.50 per boe.
Transportation costs averaged $9.02 per boe, down 12% compared to the prior quarter. Frontera's transportation costs averaged $10.43 per boe, within its 2021 guidance range of $10 to $11 per boe. The company recorded a realized loss on risk management contracts of $6.7 million in the fourth quarter of 2021, virtually flat compared to the prior quarter. The realized loss on risk management contracts was primarily due to the cash settlement on three-way collars, puts and put spreads contracts paid during the quarter at an average price of $79.66 per barrel.
Subsequent to December 31, 2021, the company entered into new put hedges, so the current hedge portfolio protects approximately 40% of 2022 estimated production up until September 2020 (sic) [September 2022] (00:28:21) at a $70 per barrel price with no ceiling, allowing the company to fully benefit from higher oil prices. In other words, the company's first quarter 2022 hedges do not cap any upside potential, and not any of the subsequent quarters as well.
I would now like to turn the call back over to our CEO. Orlando?
Thank you. Thank you, Alejandro. So as you have heard Frontera had a very busy and successful fourth quarter and full-year in 2021. Looking ahead, I'm very excited about our 2022 capital and production plans, which optimizes both capital efficiency and free cash flow after development CapEx in 2022 and beyond built on the significant progress the company made in 2021 on its objectives and maintains a disciplined approach to spending in the face of increasing inflationary pressures.
For Frontera 2022 capital program is self-funded at $70 per barrel Brent prices, and is focused on two key areas. First, we anticipate spending 225 – between $225 million and $255 million in our Colombian and Ecuador upstream business to deliver full-year production between 40,000 and 43,000 boes per day, a 10% year-over-year increase at the midpoint. We will capitalize on the sweet spots of our portfolio by investing in development facilities at VIM-1, drilling opportunities at the recently acquired Petrosud assets, development drilling at Quifa, exploration activities and maintenance and production integrity activities across our portfolio. The activity is also expected to create a platform for future growth in 2023 and beyond.
Second, Frontera and CGX anticipate a spending between $110 million and $130 million on Guyana exploration, primarily to drill Wei-1, our second high impact exploration well in the most exciting offshore base in the world. CGX anticipates spending [indiscernible] (00:31:22) $5 million to $10 million on Guyana infrastructure to advance the Berbice Deep Water Port project.
We anticipate generating operating EBITDA of $375 million to $435 million at $70 per barrel Brent prices, $475 million to $525 million at $80 per barrel Brent prices and $575 million to $625 million at $90 per barrel Brent prices which demonstrates our upside to higher oil prices. Additionally, we anticipate continuing to enhance shareholder returns through our NCIB, which the company intends to renew when our existing NCIB expires later this month to permit purchases of up to 10% of its public float over the next year.
With that, I would like to conclude by saying thank you to Gabriel and Alejandro for their comments and thank you everyone for attending our call. I will now turn the call back to our operator who will open the call up for questions.
Thank you. [Operator Instructions] Our first question comes from the line of Ezequiel Fernández with Balanz. Please go ahead.
Hi. This is Ezequiel Fernández from Balanz. Thanks for taking my question and the materials for the quarter. My first question is related that Frontera seems to be a bit below the customary hedging level as a percentage of output right now which of course has turn out to be a favorable thing, and – I mean if we are not mistaken about that and for how long are you aiming to remain more exposed to spot pricing than usual?
Thank you for the question Ezequiel. This is Alejandro. I think we have exposure to the upside. We have protected the downside. Right now we have naked put in place up until the third quarter of 2022 with a floor of $70 per barrel which allows us to protect our program – our plan and as well as our capital program for 2022. I think that the strategy – the hedging strategy for Frontera is to cover 40% or at least 40% of production over the next year. Protecting the downside, I'm looking for – to provide exposure to upside in Brent prices. So, currently we are exposed to the spot price, which has been increasing significantly and we are realizing the benefits or the full benefit of the increase in oil prices in 2022. In this current price environment, we are satisfied with that approach. And we will continue to execute our hedging strategy according to this approach.
Great. That's great. I have a second question related to your gas plants in Colombia. I know that at the moment it's not such a relevant operation, at least not the biggest contributor to revenues, but it's interesting because prices on the domestic gas market are pretty good, $4.5 per MMBtu or so. So if you could share with us maybe a little bit of what you're trying to do with VIM-1 and the new acquired areas in terms of target output, if that production is going to be connected to the Promigas pipeline or the TGI pipeline if you're looking for some contracts or to remain on the spot basically at?
Okay. Thank you. Thank you Ezequiel. Well, I think as you implied in your question, I mean the gas market in Colombia I mean represents a good opportunity for the company. That is why we were, I mean, very keen to start the production at La Belleza discovery in the fourth quarter of last year. In addition to that, that was something very fundamental part of the rationale behind the acquisition of Petrosud. So that will I mean increase our – the participation of natural gas in our portfolio. And I can tell you that most of that production is being sold to a market under contracts, under fixed term contracts, so just to take advantage of the increasing prices in the market.
Okay. And a follow-up on that one. How are you selling that gas in terms of transporting it? Is it connected to a pipe? Does it go by truck?
It is connected to the National System, to the transportation system. So both – I mean both Petrosud is connected to the system and La Belleza – the gas production at La Belleza is being sold as compressed natural gas.
Okay. Perfect. And the one that is connected to the gas pipes, is that the Promigas or the TGI pipes?
That is [indiscernible] (00:38:11) pipeline.
Oh, okay. So it's the [indiscernible] (00:38:18) and then it goes to Colombia. So, okay great. And I have a final question...
Yeah. Exactly yeah.
Okay. And I have a final question that – maybe it's a little bit hard to answer right now, but I'll give it a try. You probably – you're unlocking some restricted cash next quarter, as you mentioned, and you're going to have a pretty good operational year. So based on your base case where do you expect your cash position to end this year?
I think we're not – Ezekiel, this is Alejandro. We're not disclosing projected cash. What I can say is that you're right that we are generating significant cash. As Orlando pointed out at $90 Brent average, our EBITDA guidance midpoint is around $600 million. So we are in a position to generate significant cash throughout the year, not only through operational and cash generation but also through the release of additional cash. As Orlando also mentioned our capital program is self-funded at $70 Brent, so anything above and beyond will be additional cash that we are generating in the company. And as I mentioned before, we have [indiscernible] (00:39:55) of the company to higher oil prices is significant.
Okay. That's great. That's all from my side. Thank you very much.
Thank you Ezequiel.
Thank you. [Operator Instructions] Our next – my apologies. There are no further questions at this time. Should you have any further questions, please email ir@fronteraenergy.ca. This concludes the call. Thank you for your participation.
Thank you.
Thank you very much.